Abstract
Studies in the psychology of individual choice have identified numerous
cognitive and other bounds on human rationality, often producing
systematic errors and biases. Yet for the most part models of aggregate
phenomena in management science and economics are not consistent
with such micro-empirical knowledge of individual decision-making.
One explanation has been the difficulty of extending the experimental
methods used to study individual decisions to aggregate, dynamic
settings. This paper reports an experiment on the generation of macrodynamics
from microstructure in a common managerial context. Subjects manage
a simulated inventory distribution system which contains multiple
actors, feedbacks, nonlinearities, and time delays. The interaction
of individual decisions with the structure of the simulated firm
produces aggregate dynamics which systematically diverge from optimal
behavior. An anchoring and adjustment heuristic for stock management
is proposed as a model of the subjects' decision processes. Econometric
tests show the rule explains the subjects' behavior well. The estimation
results identify several ‘misperceptions of feedback’ which account
for the poor performance of the subjects. In particular, subjects
are shown to be insensitive to the feedbacks from their decisions
to the environment. Finally, the generality of the results is considered
and implications for behavioral theories of aggregate social and
economic dynamics are explored.
Users
Please
log in to take part in the discussion (add own reviews or comments).